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"The least expensive kilowatt, is the one not used."

- Jacob Goldman

Creating Millions of U.S. Jobs on the Road to Grid Parity: Why the 30 % Solar Cash Grant Should be Extended

In the 2011 MIT Technology Review article entitled, "Solar's Great Leap
Forward," the CEO of Suntech Power – the world's largest manufacturer of
solar panels – predicts "solar grid parity" within 5 years. Solar grid
parity is the point where the cost of installing a solar P.V. system is equal
to the cost of installing a conventional power system to the end user, which is
the building owner. In the same issue of the MIT Technology Review, Bill Gates
of Microsoft makes the point that due to the scale of the energy sector,
government support is often essential to maintain innovation.

Currently, the United States federal government offers a 30% solar tax
credit or 30% solar cash grant to end users who install a solar P.V. system on
their commercial or government property. Unfortunately, however, the 30%
federal solar tax credit is due to expire December 31st, 2016, and the 30% cash
grant program expires December 31st, 2011. The solar cash grant program has
been extremely successful and, if renewed, it would only continue to gain
momentum during the 5-year transition period to grid parity. Thus, it is the
authors’ opinion that to remain globally competitive the United States
must renew the cash grant program.

The increasing national support for solar in other countries is extensive.
China, Japan and Germany, among others, have taken a progressively more
aggressive stance by supplementing the “market pull” of taxes with
the “market push” of direct market regulation, intervention and
research and development. Further, the nuclear crisis at Fukushima, Japan, has
prompted renewed support for solar from governments around the world. Germany,
for example, announced that it will shut down all of its nuclear facilities in
favor of solar, while China will expand its already world-leading solar
manufacturing, and Japan will increase its solar P.V. production twenty-fold by
2030. The U.S. federal government has concurrently made massive investments in
a solar support structure that will only provide the intended result with
continuing U.S. federal solar incentives.

Though the Section 1603 program does not offer financial incentives to solar
P.V. manufacturers, its focus on stimulating solar installations has the
potential to significantly improve the United States' energy future. Solar P.V.
systems are reliable, renewable, clean, labor-intensive and, as technologies
make P.V. systems increasingly efficient, cost-effective and energy
independent. In other words, by taking a proactive stance about transitioning
to a solar-based energy grid, the federal government can enable the country to
reduce carbon emissions, reduce dependence on foreign oil, reduce the cost of
energy, protect citizens from volatile energy markets, and create millions of
jobs.

The Section 1603 cash grant program has been utilized by numerous property
owners throughout the United States. At a time when our global competitors are
accelerating their country-supported solar initiatives, the U.S needs to
support its own solar industry or we will be left hopelessly behind. The U.S.
must, at a minimum, renew the cash grants in order to continue domestic demand
for solar P.V. and remain competitive in the international market for solar.

The material that follows provides more details about other countries’
accelerating commitment to solar with an emphasis on Germany and China's
initiatives. After this review, the article explains why, in the context of
these global developments, now is the time for the U.S. to hold its own and
stay committed to solar cash grants during the 5-year grid parity transition
period. The authors will also argue the importance of solar to job creation and
the U.S. economy.

The Current Global Solar P.V. Environment

In addition to the U.S., the largest solar P.V. manufacturing countries are
China and Germany. Both countries have had historic and continuing impacts on
solar P.V. technology innovation, production and policy. Also aggressive in
their policies, if not yet their production scales, are Brazil, Canada, India,
Israel, Italy, Japan, Spain, and Switzerland.

China

China is the world’s largest electricity consumer and the largest
manufacturer of solar P.V. materials. As of 2009, Chinese solar module
production accounted for approximately half of worldwide market share (see
Figure 1). This figure is expected to rise due to the central
government’s solar-friendly policies, including subsidies to domestic
solar panel manufacturers. For instance, the municipal government in Changsha
recently transferred 22 acres of valuable urban land to a private solar
manufacturer at a bargain-basement price to decrease the company’s costs
and greatly increase its worth and attractiveness to investors.

Likewise, manufacturers like Suntech have been able to cut costs through the
Chinese government’s direct investment in the company as well as low
interest loans made available through the central Chinese Development Bank.
China’s proactive policies thus enable solar manufacturers to respond
quickly and effectively to rising international demand at competitive price
points.

Further, China has recently increased its already ambitious solar targets
for in-country solar installations. The country intends for wind, solar and
biomass energy to represent 8% of its electricity generation capacity by 2020,
up from the 4% currently .

Germany

Germany has been a leader in domestic solar installations for many years. As
a non sun-intensive locality, Germany's accomplishments demolish all
preconceived notions about which nations can and cannot become leaders in solar
power. At the turn of the “Solar Century, ” Germany primed the pump
for widespread in-country solar installation by enacting the Renewable Energy
Sources Act of 2000 (EEG). As a result of this initiative, the German grid now
gets more than 16% of its electricity from renewable resources, enough to make
it the world leader in this regard. In fact, due to the success of the EEG, the
government has raised its target for 2020 from 20% to 30% renewable energy
generation. In the aftermath of the Japanese earthquake, Prime Minister
Merkel’s decision to shut down all existing nuclear facilities brings
alternative energy, including solar, back to the forefront.

Further, German companies are leading players in the global solar market. In
2000, the country passed a law requiring old, fossil-fueled utility companies
to subsidize solar installations by buying their electricity at marked-up
rates, making it easy for the newcomers to turn a profit. Known as a feed-in
tariff, or FIT, this law was part of a bigger vision to cut Germany’s
greenhouse gas emissions by one quarter by 2020. Germany established this goal
in accordance with the Kyoto Protocol, a program that Germany takes very
seriously.

Germany’s solar initiatives have created nearly 300,000 jobs . This
positive feedback loop between government policy, energy independence,
manufacturing success, and job creation has eased political tensions
surrounding the country’s decision to impose the FIT. With such forceful
legislation behind it, Germany has used solar power to capture increasing
market share and generate jobs despite the fact that it has the second
cloudiest skies in Europe.

Other Nations’ Programming

The following table (Table 1) outlines solar policies for several other
nations.

Table 1: Other Nations’ Solar Policies

The International Community – Lessons Learned

In deciding how the U.S. should pursue its solar policy, the U.S. has a lot
to learn from Spain . Like many of the countries above, the Spanish government
provided substantial subsidies to its domestic solar industry. However, Spain
did not monitor its investments closely and many of them subsequently faltered
out of the gate. In response, the government cut its incentives, causing the
domestic solar industry to stall. The lesson is clear: Solar power requires
intelligent, consistent support from the national government in order to
thrive. With such a policy in place, grid parity is possible, and the U.S. can
expect to then gradually wean the industry off of government support.

Current U.S. Solar P.V. Development

The United States is just beginning to achieve major year-over-year
increases in commercial solar installations. Incentives, both state and local,
have pushed the U.S. solar industry as far as it has come. In particular, the
1603 cash grant program has been integral to the success of solar. Solar P.V.
installations grew by 114% from 2009 to 2010, resulting in $1.145 billion worth
of grants for solar energy projects to date. Moreover, industry analysts
predict these figures to increase this coming year . “With analysts
predicting that the U.S. will become the world’s largest solar market
within the next few years, manufacturers are increasingly looking to the U.S.
to site their facilities,” said Tom Kimbis, SEIA Vice-President of
Strategy and External Affairs. In sum, as of the time this article is being
written, 20.3 GW of solar power is either installed, being installed or in
their development phase since January 1, 2010.

According to Matt Rogers of McKinsey & Co., the 1603 program has been so
successful because it gave clarity and confidence in how funds would be
administered . The straightforwardness of a cash grant as compared to a tax
credit gives companies certainty in an uncertain market, which has the added
benefit of stimulating innovation and therefore job creation. Indeed, recent
studies have shown that, during the recession, tax credits had limited utility
because of corporations’ minor or nonexistent tax capacity. Cash grants
are completely liquid and therefore companies’ tax capacity is not an
issue.

Using the 1603 Solar Cash Grant to Help Close the Grid Parity Gap

The following charts show the cost of grid-parity electricity as compared to
the cost of a solar installation for large commercial building. A final chart
below then shows how the 1603 cash grant helps close the gap between the cost
of these two paths, helping to justify solar investments until grid parity can
be reached.

Based on the example above, it’s clear why the solar cash grant has
been so successful at incentivizing solar projects: the grant reduces the
excess financial burden by almost half! Without federal aid, this sample
installation costs $600,000 extra as opposed to $330,000 without the grant.
This remaining gap may be mostly or fully closed with lucrative state
incentives, especially in states like New Jersey or California.

State Rebates: Further Evidence That Incentives are Key

It’s no coincidence that the states with the best solar development
are those with the most generous incentive structures. Below are two tables
(Table 2), one showing the states with the top ten solar-friendly policies in
2010 as measured by DSIRE, the other showing the top ten states for solar
installations in that same year.

Table 2: Top Ten Solar Policies and Installations by State

The italicized states appear on both lists. As the table shows, there is 40%
overlap between states with the best incentives in 2010 and states with the
most installations. It should also be noted that Pennsylvania and North
Carolina, two states appearing on the installation top ten, are also
well-regarded with respect to their solar incentive programs.

The states with the largest numbers of warehouses include California, New
Jersey, Pennsylvania, Indiana and Kentucky. These states would continue to see
increased rooftop solar development with a Section 1603 extension.

Huge Increases in U.S. Solar Support Investments

The U.S. has greatly increased its overall financial support for solar. It
is important to realize that the U.S. has recently made huge ancillary
investment commitments to support solar P.V. including manufacturing P.V.
investments, solar technology enhancements and improvements in solar
installation processes. For instance, the Department of Energy has solicited
proposals for the development of power electronics technologies that reduce the
overall P.V. system costs, allow high penetrations of solar technologies onto
the grid, and enhance the performance, reliability, and safety of the P.V.
system. The department has also established foundations to provide funding for
research into increased P.V. efficiency, decreased solar product expense, and
better solar-to-building integration.

Combined, the DOE’s funding amounts to $188 million. This information
is summarized in Table 3 below. Solicitations for proposals, along with
commitments for funding, are crucial to the overall success of the shift
towards solar, since more efficient, less costly installation will help to
accelerate grid parity.

Table 3: Additional Major U.S. Solar Support Grants

The U.S. Commercial Roof Square Footage Advantage.

The United States is ideally suited for solar due to the enormous amount of
roof space it contains. The U.S. has more roof square footage than any country
on earth thanks to its plentiful warehouses, industrial buildings and big box
retail centers. By some estimates, there is over 2.5 billion square feet of
roof atop U.S. warehouses alone . This roof space amounts to a massive national
resource the country underutilizes.

The following table (Table 4) presents the potential electricity that can be
provided by America’s incredible warehouse roof resource.

It makes no sense for the country to terminate the 30% cash grant during the
solar 30% tax credit period running through 2016, since many warehouses are
owned by non-tax paying REIT's. A second large U.S. roof resource, big square
foot retailers including Wal Mart, Kohls and Macy's have recently made great
strides with solar.

Big-box Retailers

On top of the billions of square feet of rooftop space warehouses provide,
several of the nation’s leading big-box retailers, such as Kohl’s,
Macy’s, and Wal-Mart have already tapped into the power of solar
electricity generation.

Kohl’s

In September, 2010 Kohl’s Departments Stores announced that it reached
the milestone of its hundredth solar rooftop store. The retailer has taken an
aggressive stance on solar; Kohl’s comprehensive energy management policy
utilizes solar in order to fulfill its commitment to eventually become carbon
neutral and has successfully installed solar modules in six states, including
non sun-intensive states like Pennsylvania and New Jersey.

Macy’s

Macy’s has also installed solar on top of a growing number of its
sunnier locations. In California alone, the department store has already
installed solar P.V. at 28 locations, generating over 8 MW of power. In fact,
the country’s largest single rooftop solar energy system is now on top of
Macy’s Goodyear, Arizona online fulfillment center. Yet like
Kohl’s, Macy’s has also proven that you don’t need to be in a
sun-drenched part of the country to integrate solar energy into rooftop space.
Macy’s has installed solar panels atop several of its Northeast
locations, including the Newport Mall in Jersey City, New Jersey and the
Hamilton Mall in Mays Landing, New Jersey.

Wal-Mart

Wal-Mart has installed solar P.V. modules at several of its stores around
the country, particularly in sun-intensive states likes California, Texas, and
Arizona, but the nation’s leading retailer still has thousands more
properties that it can outfit with solar in order to achieve significant energy
cost reductions. Since Wal-Marts are typically extremely large, wide buildings
with vast flat roof space, they are perfect candidates for solar P.V.
installations. Wal-Mart requires its suppliers to have alternative energy
strategies, which presumably means Wal-Mart will have to accelerate its own
solar P.V. progress .

This momentum should be bolstered, not cut short.

Complete Transparency

The federal government has been very transparent about the 1603 program and
provides a monthly update on its use. The 30% solar cash grant awards are
rapidly increasing and a groundswell of awards is expected as the December 31st
deadline draws near. As of June 16, 2011, $1.145 billion in solar P.V. cash
grants have been approved. Using the 30% grant rate this means that over
$3,800,000,000 in solar projects used the grant program.

Optimizing Solar Efficiency with an Advanced Smart Grid

A smart grid – a collection of advanced transmission and communication
technologies for handling electric power transmission – is necessary to
optimize solar power's potential. In desert areas, concentrated solar power can
generate large amounts of electricity that must be stored and transmitted when
needed. Further, end users of solar panels will want to sell their excess power
back to the grid for use by others. With a well-developed grid, both of these
goals can be accomplished. Countries like Germany are proof that solar power
can account for a substantial portion of a nation's energy pie, and smart-grids
are the key ingredient.

The United States is the undisputed world leader in the software industry. A
world-class smart-grid provides advantages beyond solar power, which is why
major U.S. companies like Google, IBM, Cisco and Oracle have already made large
investments in the development of software and Internet infrastructure. Google,
for example, made Silver Springs, a smart metering company, one of its first
investments in its newly formed venture fund. Continued solar cash grant
support from the U.S. government would thus compliment major initiatives being
undertaken by our nation's leading firms.

Google

Google has begun exploring a host of investments, some targeted at utilities
and some at homeowners, who Google helps monitor and make adjustments to their
energy use through iGoogle. PowerMeter is one such project, where Google and
Energy, Inc. have teamed up to provide monitoring without the need for a meter.
The $280 million boost Google is giving to home solar illustrates
Google’s industry-leading commitment to developing the smart grid in
order to accommodate solar electricity generation.

Oracle

The Oracle Utilities Smart Meter Platform allows utilities to manage the
data from their customer's meters and helping them improve numerous facets of
their service. By collecting and organizing consumption data, utilities using
Oracle’s smart grid infrastructure will be able to control operational
costs and respond to meter-related events and alerts in real time.
Oracle’s integrative approach exposes the vast potential for many of the
country’s leading software firms to wed their technical expertise with
solar’s enormous capacity for electricity generation to produce an
efficient, cost-effective smart grid system

Cisco

Cisco spends $20 billion annually on smart grid investments. Like Oracle,
the company emphasizes "end-to-end" solutions for utilities, meaning that it
delivers advanced transmission and distribution automation tools and
infrastructure to utilities in order to increase grid reliability and reduce
expenses. Unfortunately, there has been speculation in recent weeks that the
company will be forced to reduce its employee headcount by 10,000 during the
summer of 2011. Renewed investments in the smart grid would create more jobs at
Cisco and mitigate the company's potential need to lay off so many workers.

IBM

IBM takes a broader approach to smart grid investment, focusing on systems
integration. The company is involved with 150 smart grid projects. The most
recent, a joint venture with utility Progress Energy helps utilities manage
their distribution more efficiently. IBM’s smart grid commitment is part
of its Smarter Cities Initiative, whereby the tech giant is positioning itself
at the center of a worldwide shift towards automated, flexible, intelligent
cities.

Though the technology companies’ investments in the smart grid
outlined above are a welcome development, government support is absolutely
necessary in order to create an integrated smart grid on the scale needed to
optimize solar efficiency. Smart grid support would be a major boon to solar
power and the economy in general, as solar installations require significant
labor and maintenance.

Generating Millions of Jobs

If a non sun-intensive country like Germany with a population of 82 million
can generate 300,000 jobs, the U.S. can generate over a million jobs with a
consistent commitment to solar. Solar P.V. creates more jobs per megawatt of
capacity than any other energy technology - 20 manufacturing and 13
installation/maintenance jobs per installed megawatt, according to a
well-publicized University of California report. The New Jersey Public Interest
Research Group reports that if only 10 percent of the homes in the Mid-Atlantic
States used some solar power, 25,390 jobs would be created, with a payroll of
$364 million by 2014.

To further illustrate the awesome job creation potential of solar energy
installations, consider the recently announced joint venture between AEP Ohio
and Turning Point Solar LLC to build a 49.9 MW commercial solar facility, which
is predicted to create at least 300 jobs over the course of its three year
construction from 2012 through 2015, and another 300 once the facility is on
line. Using Solarbuzz's estimate of 20.3 GW of completed or partially completed
commercial solar installations, this means that solar is already responsible
for the creation of 244,088 jobs in the U.S.

Not only is the installation of solar modules labor intensive, but there is
a lot of labor that goes into the pre-planning stages of building solar
preparation. To insure that the solar P.V. property is in the correct fiscal as
well as physical shape, typically electricians have to install more
energy-efficient lighting and roofers have to make roof enhancements. Solar
design requires engineering review, financial analysis requires accounting
work, and contracts require legal services.

The solar installation process takes approximately 740 man-hours for every
100,000 square feet of rooftop space. When extrapolated to the entire 2.5
billion square feet of warehousing space in the U.S., warehouses alone present
the opportunity to create 18.5 million hours of installation labor.
Furthermore, those hours do not take into consideration the pre-solar
installation of energy-efficient lighting, which will require millions of
electrician hours, nor does it factor the pre-solar roof improvements and/or
replacements, which will also require millions of roof installer labor hours.
The total amount of labor hours that solar installations create truly is
exponential.

Conclusion

The existing 30% 1603 solar cash grant program is an unqualified success. As
presented above, the world's largest economies are accelerating their
commitment to solar. This support is critical during the 5 year solar P.V. grid
parity cost transition period. At a time when the U.S. economy has trouble
generating jobs in the face of escalating energy prices, this job-intensive
alternative energy program should be continued.

Without our country’s continuing commitment to solar P.V., our global
competitors will outpace us in both alternative energy and job creation.

Charles R. Goulding Attorney/CPA is the President of Energy Tax Savers Inc.,
The EPAct 179D Experts, an interdisciplinary tax and engineering firm that
specializes in the energy-efficient aspects of buildings.